Shares of chipmaker Advanced Micro Devices (AMD.US) are up 80% since its last report, for Q3 2023. Investors are hoping that the company's guidance on the demand cycle in the broader graphics chip sector and the 'new' AI chip market will provide the company with further fuel for growth, as consistently supply, not demand, appears to be the main constrains for AI chips market. Traditional PC markets are under pressure, and given that AMD's AI business (unlike Nvidia's) is nascent, the market may react to possibly lower-than-exaggerated forecasts of guidance for estimated annual AI revenue. However, this doesn't change the fact that Wall Street will somehow build expectations for Nvidia, based on AMD's report and guidance. Also, still limited stake in AI chips from Intel may support AMD shares, if the market makes sure that the company will share the advanced AI chips market, almost exclusively with Nvidia.
Revenue: $6.1 billion vs. $5.6 billion in Q4 2022
Earnings per share (EPS): $0.77 vs. $0.69 in Q4 2022
Data centers: $2.3 billion in revenue (up 40% y/y)
Client segment revenue: $1.5 billion (70% increase y/y)
Gaming and services revenue: $3.3 billion (down nearly 25% y/y)
Will data centers replace AMD's core business?
It appears that even weak earnings from the core business may be offset by positive guidance toward AI chips, as some investors expect a comparable surge in data center revenue to Nvidia, with a jump in 2024. If AMD provides much more optimistic guidance than it did in Q2 2023, we can expect results from the PC and gaming segments to slip. That doesn't change the fact that the bar has been set high.
Attention to AI
- HSBC expects that disappointing forecasts for Q1 2024 could weigh on AMD's stock price after spectacular gains, as weakness in the traditional business market (outside of data centers) persists. MI300 GPU chips may not be enough to reduce these concerns completely, and the recent share price rise has raised the threshold for the company regarding the potential for additional cash from AI chips
- UBS analysts suggest, however, that while the consensus around earnings has indeed increased, the bank remains confident about gaining market share in GPUs and data centers. In a wave of these conclusions, UBC has raised expectations for AI market share for the company, for 2024 and 2025
- The company itself has commented that it expects $2 billion in revenue from its MI300 AI gas pedals, but the feeling on Wall Street is that this target is likely already out of date and will be raised. If that were not to happen, however, and AMD were to reaffirm its original expectations, we could see profit realization. Wedbush Securities expects AMD to take a single-digit share of the AI chip market, still in 2023, and assumes $1.1 billion more in AI chip revenue than the company's own estimate. What's more, Wedbush analysts maintain that the AI chip market is still constrained by supply, not demand, as confirmed by discussions with semiconductor industry insiders.
- Susquehanna analysts have conveyed that the market estimates opportunities for as much as $6 billion in AI chip revenue, by 2024. That's nearly twice as much as Wedbush and nearly three times as much as AMD forecasts, released in Q2 2023. A diverse group of end customers is looking for alternatives to Nvidia's expensive chips. Will AMD rise to the challenge?
AMD shares (D1 Interval)
The chipmaker's shares have posted a more than 300% rally from the bottom of the sell-off in the fall of 2022. The scale of the increases is 1:1 similar to the rally between March and the peak of the euphoria in 2021, highlighting the cyclical nature of the semiconductor industry. The potential added value associated with AI chips could add value and an additional catalyst to stock valuations. If the company 'defends' its claim to snatch a sizable share of the Nvidia-dominated market, we can expect the gains to be extended.
Source: xStation5
